Harley – Davidson Inc. Motorcycle Industry Essay, Research Paper

Harley – Davidson Inc. Motorcycle Industry

INTRODUCTION

The purpose of this report is to develop a strategic corporate objective

for HarleyDavidson Inc., a publicly traded, employee owned manufacturer of

heavyweight motorcycles, recreational and commercial vehicles, military defense

items, and small engines, distributing its products to domestic and

international markets targeting all men and women of all ages.

INDUSTRY AND COMPETITIVE MARKET

The industry under study is the motorcycle industry consisting of five

major manufacturers: one American (Harley Davidson), and four Japanese (Honda,

Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany and

some other Italian companies). Most companies market their motorcycles and

accessories on a worldwide basis, handling international trade through foreign

distributors and domestic sales through franchised outlets. Industry sales of

motorcycles were shrinking in the early l990s because of the recession and the

competition from computers and electronic products decreasing consumers’

discretionary income.

Sales of accessories and parts make up 36% of total retail sales and is a

viable area for producers to explore because people want something to

differentiate their bikes. Previously, motorcycles were viewed as a cheap means

of transportation. By 1992, they came to be viewed as a recreational, or a

luxury item. This new perception of motorcycles led to the introduction of more

expensive models with higher prices. This led to the introduction of consumer

financing, one of the fastest growing service areas in the motorcycle industry.

MISSION

Harley’s strategic objective is to continue to provide safe, high

technology heavyweight bikes and keep customer satisfaction at high levels. This

quality vision more than doubled Harley’s market share and increased its brand

loyalty.

EXTERNAL PLANNING PREMISES

CUSTOMERS

They can be divided into 2 categories men and women.

Men.A. Men under 30. This group accounts for 44% of all sales. Therefore, a

great opportunity exists here because of the group’s size. This group’s members

buy motorcycles for their transportation and recreation needs. Men in this group

buy more of mopeds, scooters and entry level lightweight road bikes.

B. Men between 30 and 50. This age group makes up 45k of buyers another

large area providing opportunities for firms. The motorcycles most frequently

purchased are the heavyweight tourers and cruisers. Many buyers are married

couples looking for an alternative to taking the car out for weekend drives to

the country.

C. Men over 50. This group accounts for about 11% of motorcycle sales.

The heavyweight touring class and the middleweight road bike categories account

for most of the sales here.

Women. This group is a segment that is growing at a fast rate, thereby

representing an opportunity area. Firms to be successful here are to provide

smaller, easier to handle, comfortable, and good quality bikes to build up brand

loyalty.

PRODUCTS

Three types of products/services are being offered motorcycles,

accessories, and financing services, all related to the sale of the main product

motorcycles.

Motorcycles: It includes mopeds or scooters (with engines under 125cc

which are used as an alternative to walking), accounting for about 17% of total

motorcycle sales; lightweight motorcycles road bikes, dirt bikes, dual purpose

bikes (with engines ranging from 125cc to 499cc), accounting for 51% of sales;

sport motorcycles street bikes, and superbikes (with engines ranging from 450

to 749cc) accounting for 13% of sales; heavyweight motorcycles cruisers, tourers

(ranging from 750cc to 1500cc) accounting for 19% of sales.

Accessories: Aftermarket accessories, such as saddle bags, higher

windshields, customized seats, and clothing items are produced or contracted to

be produced by all leading manufacturers. Since these items realize high profits

and strengthen customer relations and customer loyalty, this area is providing

an opportunity for companies. To succeed here, firms provide a wide product line,

of stylish items, and aggressively advertise/market them.

Financing Services: As prices of motorcycles increased well above the

reach of many motorcycle enthusiasts, manufacturers begun to set up consumer

credit arrangements falling into 3 categories consumer, dealer, and corporate

financing. Financing services are vital for success in the industry and firms

unable to provide them will lose market share. To succeed here, firms are to

provide a wide variety of flexible (in terms of maturity and payment

arrangements) plans.

MARKETS

Although motorcycles are sold internationally, 3 main geographic markets

comprise the bulk of motorcycle sales North America, Asia, and Europe. The

largest is the North American Market (USA and Canada account for about 60% of

this market) accounting for 60% of worldwide motorcycle sales. With the baby

generation aging, opportunities exist for the penetration of new markets.

The Japanese market accounting for a great chunk of the Asian Market

is an untapped one for foreign manufacturers. Government regulations and trade

policies make it difficult for foreign manufacturers to enter though. Most

Asians consider motorcycles as a basic means of transportation. Major target

areas include China, Korea, Taiwan and Vietnam.

The European Market is another market with great potentials since

Europeans have a higher disposable income and enjoy a higher standard of living.

Eastern Europe is not offering a good deal mainly because of its unstable

political and economic environment.

To succeed in these markets, firms are to modify products to meet local

needs, provide after sales service, expand distribution networks, create strong

customer

COMPETITION

Competition in the motorcycle industry consists of only a handful of

producers worldwide. The Japanese producers Honda, Yamaha, Kawasaki, and

Suzuki are producing a full line of motorcycles ranging from scooters to

heavyweights, and together control the largest share of the market. Their wide

product line though has also created some customer complaints to them

(especially true for Honda and Kawasaki) for low quality service. This

significantly decreased their market shares. Japanese companies’ success began

with copying other products, but evolved to depend on innovative designs and

technology. Harley Davidson is producing heavyweight motorcycles emphasizing

good quality product and after sales service, thereby building up brand loyalty.

Honda is the largest company in terms of size, financial backing, and

reputation. It is offering the widest selection of styles, classes and sizes

within the heavyweight category. This wide product line hurts Honda since

salespeople have limited knowledge of each product. Kawasaki’s products include

a full line of motorcycles, all terrain vehicles, jet skis and other. It is the

leader in superbikes manufacturing but US legislation is limiting the number of

sports bikes to be imported because of safety reasons. Yamaha produces Harley

clones but lacks Harley’s image. Being a market follower, Yamaha is to face many

problems. BMW is famous of producing quality products but its high prices hold

it from expanding sales.

INTERNAL PLANNING PREMISES

CUSTOMERS

l. Men.

Under 30: This segment is growing since men in this category look for a

cheaper alternative means of transportation and for recreational purposes.

Harley is to produce high quality, safe bikes, with radical styles and provide

them at reasonable prices to build up brand loyalty.

30 50: Recent demographic profiles show that the median age of buyers

of Harley products is 35 and their customers’ median household income is about

$45,000. These customers account for a great market chunk and, therefore,

provide an opportunity for Harley, which is to provide them with safe, high

performance, good quality bikes to increase brand loyalty and succeed in this

segment.

Over 50: Motorcycle lovers still want to ride Harleys when they are

above 50 years of age but they now look for more comfortable, easy to use bikes.

Harley is to provide them with both of them in order to penetrate this market.

PRODUCTS

Motorcycles. Harley Davidson produces only heavyweight motorcycles (with

enginedisplacements of 750cc or greater) that are categorized into touring and

cruiser motorcycles.

Touring motorcycles are designed for long distance riding and feature

many car like features (i.e., trunks), and provide Harley with the greatest

profit margin. Cruisers are styled after early motorcycles and are the kind

most often associated with Harley. They provide a very low profit margin

because of their low prices used as a means to attract young customers. Harley

is to increase its R&D to improve product designs, quality, and safety. It is

also to offer a guaranteed resale value (that most Japanese firms are lacking),

offer a high quality after sales service and, therefore, build up its brand

loyalty.

Accessories. This category includes a new line of riding and fashion

apparel bearing the Harley Davidson insignia. These products are distributed to

Harley retailers and outlets in the retail clothing market. Harley is to

provide a wide variety of stylish products and aggressively market them.

Financing Services. Harley offers financing through a joint venture

with Ford Motor Credit Company (FMCO). Harley due to its lack of capital,

avoided forming its own subsidiary providing financing services something that

Honda and Kawasaki have already done. Harley is to offer a wide variety of

flexible plans to meet this great opportunity that arose due to inflated prices

of motorcycles and willingness of people to use credit lines as a way to improve

their standard of living.

MARKETS

Harley is the established leader of heavyweight motorcycles in the North

American market, accounting for about 60% of the market share. The size of its

market share provides an opportunity for Harley to exploit. Its customers are

the most loyal of any other brand and its products have great reputation.

Foreign markets are growing very fast because customers there are obsessed with

Harley’s quality and safety bikes and provide a great opportunity for Harley to

exploit. The main problem is Harley’s limited production capability, putting

customers in a waiting list for a couple of months. To succeed here Harley is

to create good customer ties, provide after sales service, build up its customer

loyalty, expand its distribution network, and modify its products to meet local

customer needs.

DECISION CHART

Alternative 1 calls for the manufacturing of all types of motorcycles,

current accessories line, and providing financing services through FMCO,

targeting all customers in both the domestic (70% emphasis) and foreign markets

(30% emphasis).

Alternative 2 includes the expansion of the accessory line, offer

financing services through a wholly owned subsidiary and manufacture sport and

heavy weight motorcycles, targeting men (90% emphasis) and women (10% emphasis)

in both the domestic and foreign markets (equal emphasis on both).

Alternative 3 says that Harley should manufacture only heavyweight

motorcycles, but expand its accessory line and provide financing services

through FMCO, targeting men (95% emphasis) and women (5% emphasis) in both the

domestic (60% emphasis) and foreign markets (40% emphasis).

Decision

The first alternative is based on the idea that Harley should capitalize

on its current reputation and success by rapidly increasing demand, and by

expanding its product line to include all kinds of bikes. This will enable

Harley to match its competitors (i.e., Honda and Kawasaki) wide product lines

and gain market share from them. This would also create major problems since

increased quantity will destroy Harley’s good reputation of producing safe, high

quality, high performance bikes, thereby decreasing brand loyalty. Also, Harley

is to produce lightweight, sport, and heavyweight motorcycles and that is to

require additional capital that the firm is lacking. Therefore, Harley is to

cut down on R&D and products quality and eventually lose out. Honda and

Kawasaki demonstrated well that effect since their market shares decreased

significantly.

Alternative 2 calls for an expansion of the accessory line that is

experiencing an increasing demand. The main focus of Harley will be on men it

is to provide lower priced, high quality, safe, stylish products to its

customers. Harley is to try to maintain its brand loyalty, good quality, after

sales service, and strong customer ties (all major competitors are lacking these

keys to success). The major drawbacks here are Harley’s plan to pay equal

emphasis on both domestic (its leading position here gives the firm a

competitive advantage over its foreign competitors) and foreign markets. Since

Harley is unable to meet demand for its products, and modify its products to

meet local demands, it is to fail in succeeding in the foreign markets while

loosing out in its high revenue producing domestic market. Also, more capital

is needed since Harley is to create its own financing Subsidiary company. That

is to cut down on Harley’s ability to invest on R&D, and produce high quality

products. Also, 10% emphasis on women is considered too large, since women

account for less than 5% of Harley’s customers.

Alternative 3, which is the one that I recommend, capitalizes on

Harley’s strengths. The company is to produce only heavyweight motorcycles,

thereby focusing its R&D on producing safe, good quality products. The company

is to guarantee a high resale value and provide good after sales service. Also

its decision to stay with FMCO financing gives the company an additional

financial advantage to be used in targeting specific marketing niches.

Customers under 30 years of age are to be provided with safe, stylish, high

quality products at reasonable prices, thereby increasing brand loyalty. Safety

issues are not being focused by the Japanese and that gives Harley a competitive

edge here though they can provide their products at lower prices. Customers from

30 to 50 years of age are to be provided with high performance, safe products,

building up Harley’s brand loyalty that is considered the strongest, especially

in the domestic market. Customers over 50 years of age are to be provided with

comfortable, easy to handle bikes to increase their convenience. Foreign bikes

are lacking this key and are expected to be outperformed by Harley. Harley’s

line of accessories (more emphasis on clothing) is to be expanded by providing a

wider product line. That by itself would advertise its products and increase

brand loyalty. Its plan to focus on the domestic market with 60% emphasis and

on the foreign market with 40% emphasis is both good and bad. It is good in the

sense that international demand for Harley products is increasing and that would

increase the company’s revenues since it will expand its distribution network,

provide after sales service, and appear there with an already established brand

loyalty. It is bad though to expand with 40% emphasis in the foreign markets

because Harley is not strong in meeting consumer demand that is expected to grow

even more and dissatisfy both domestic and foreign customers. Surely, Harley

can solve this problem by getting loans, thereby expanding its plant capacity

and meeting this increased demand. The future cash flows that will arise due to

increased sales will be used to repay these loans and maintain the company’s

good credit rating.

SWOT ANALYSIS

Harley’s high R&D accounts for innovative designs providing Harley with

unique product designs that set Harley apart from its competition. In order to

achieve that, Harley is to increase its R&D to improve product designs, quality,

and safety. It is also to offer a guaranteed resale value (that most Japanese

firms are lacking), offer a high quality after sales service and, therefore,

build up its brand loyalty. Harley also, provides a wide variety of stylish

accessory products and aggressively market them.

Harley due to its lack of capital, avoided forming its own subsidiary

providing financing services something that Honda and Kawasaki have already

done, and that is a wickeness for the company. That lack of capital also makes

the company unable of producing the amount of products needed.

There are some oportunities for the company, For example the expansion

of its markets o Asia and Europe. In addition, of having its own financial

services is a profitable expansion.

Some of the threats are the tarrifs that might exist in other markets,

and the immitation of Harley’s products from other competitors.

STRATEGIES

The strategies that the company might use have to do withe expansion to

other markets like Asia, or Europe in order to increase sales and market share.

In addition the creation of its own financial services could bring more profit.

Harley should give a lot more emphasis to the male customers and also increase

the emphasis on the foreign market close to 40%.

IMPLEMENTATION ISSUES

Some of the problems that the previous strategies may face depend on the

lack of capital. Of course a loan could be beneficial since the returns from

the sales would be enough to pay back the loan. In addition, exports in Europe

are not that easy since the products are going to be taxed more, since they come

from a country outside the Europian community. In the future a subsidiary in

one of the European community countries would relax the tarrifs.

TOWARDS THE FUTURE

Towards the future the company is expected to do very well and increase

its market share. The management objectives is expected to be the same as the

current ones. Therefore the company is expected to manufactore only heavyweight

motorcycles, but with the use of some loans will be able also to icrease sales

in Asia and Europe.